John Swainson: He came out of the Blue to put right the firm whose accounts had flashed red

The new chief of CA talks to Stephen Pritchard about why he left IBM for a scandal-hit competitor where systems and software are being overhauled
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The Independent Online

The software company has spent the past two years recovering from an accounting fraud - carried out in 2000 and 2001 - and not one but two subsequent US government investigations into its affairs. As a result of the scandal, CA had lost its former chief, Sanjay Kumar - who has been indicted on charges of securities fraud, conspiracy and obstructing justice - entered into a "deferred prosecution" agreement with the US authorities, and overhauled its management structure.

For Swainson, an IBM employee for 26 years and head of sales for Big Blue's software division, the decision to move to CA could have seemed like professional suicide. The company's problems were not just regulatory.

In 2000, its turnover was more than $6bn (£3.5bn); by 2001, the combination of a new licensing model and a downturn in the IT sector had cut that figure to $3.3bn.

For its financial year ending in May 2005, CA's revenue had crept up slightly, to $3.5bn. But two years of introspection had left the company, despite an above-average spend on research and development, with a product portfolio that was treading water. There was too much focus on software for old-fashioned "legacy" IT systems, and a sales force that was no longer accustomed to winning deals.

"But I am optimistic about the prospects of the company," says Swainson at the company's headquarters on Long Island. "We are fixing a lot of things, changing a lot of things and starting to see an impact on the number of new engagements with customers - customers who had no significant interchange with CA for a number of years."

Many of these changes were already under way before CA asked him to join the company, Swainson readily admits. A new management team under the chief financial officer (now chief operating officer), Jeff Clarke, a former Compaq and HP executive, and the interim chief executive, Ken Kron, had negotiated the settlement and introduced new measures. These included appointing a chief compliance officer and installing, at a cost of $80m to $100m, a new enterprise resource-planning software system.

Swainson concedes that the measures CA has had to take have been costly, but thinks shareholders understand the need to make investments in the company's infrastructure. The accounting problems - and inadequate control systems - were symptoms of CA's immaturity as a business, he believes. The new system will be vital for its future. "We are putting in place a more efficient infrastructure that will allow us to grow - and we won't need substantial investment to sustain growth," he says.

But reforming its corporate governance will not, on its own, be enough to return CA to growth. The company needs to address a number of equally fundamental problems.

CA has an exceedingly broad portfolio of products - a catalogue so extensive that Swainson has described it as "beyond the capabilities of a rational human being to figure out". One priority for the company is to focus more on its core products.

Much of the core business, though, is closely tied to mainframe computer systems. Software to help companies manage mainframes, and especially IBM hardware, is CA's best-known area of expertise. And although IBM has done much in the past couple of years to prove there is still life left in the mainframe, Swainson concedes that CA needs to pay more attention to "distributed" computer systems: Unix, Windows and, increasingly, Linux.

But the biggest challenge for Swainson is to persuade IT directors to spend money on management and administration software, rather than hardware, applications or people.

He rejects the suggestion that CA software is no more than "nice to have", pointing out that 75 per cent of the company's customers say its products are "critical or important to their business".

CA has to convince IT departments to pick its software over that of the hardware and operating system vendors, especially for Windows. And he has to convince them that it is worth investing in management tools now, to save on IT administration costs later. "In a complex and heterogenous world, we are the only vendor that can provide a complete security and management solution that spans all the architectures," says Swainson.

A narrower focus - and maintaining R&D spending at more than 20 per cent of turnover - should allow CA to win more business from competitors such as IBM, HP and Veritas-Symantec.

For CA, this focus will be on three areas: systems management, security and storage. Swainson is aiming to take 30 per cent market share - "which is what market leaders, at least, get in this business," he says.

He does not expect CA's business - centred on making IT systems more efficient and easier to manage - to have a single dominant player in the style of other sectors, such as operating systems, databases and productivity applications. "There is a propensity in this industry to have a disproportionate market share aggregate to the leader," he says, "but this is not what we aspire to." He describes CA as either the "largest of the small guys or smallest of the big".

"I believe we can build CA into a very good growing business, but not one the size of IBM or Microsoft."

Over the coming months, Swainson's team will have to increase the number of customers buying the company's products, as well as building bridgeheads in completely new markets.

"CA is concentrated in a relatively small number of large enterprises, amounting to a couple of thousand customers," acknowledges Swainson. Moving beyond this will mean growing the business geographically, as well as involving more routes to market, such as selling more software through resellers rather than by relying on its direct sales force.

CA also wants to sell its software to completely new customers, such as consumer electronics manufacturers. In markets such as security software for home entertainment devices, that CA is relatively unknown among consumers is not a barrier. In fact, it could even be an advantage for manufacturers that do not want a software company with its own strong brand putting their wares on its products.

To win that new business, whether it is from consumer electronics manufacturers or from enterprises, CA will have to provide evidence of its renewed commitment to product innovation and quality - now that its internal problems are behind it. Swainson cautions that business customers, in particular, are taking longer to place large orders, and are spending more time on evaluating suppliers' wares.

And being successful in this climate means having products that are among the best, if not the best, in the market.

"One of the reasons we decided to concentrate the efforts of our business was the realisation that we can't be good at everything," says Swainson. "Instead, you have to be good at a few things. It is OK to be OK at some things, but only if there are also areas where you are really good."

CA's corporate governance is now up there with the best in its industry; the challenge for John Swainson is to make sure that the company's products keep pace.